sain t-gobain annu al report 2008 annual report

NOTE 12
Group savings plan (“PEG”)
The PEG employee stock purchase plan is open to all Group
employees in France and in most other countries where the
Group does business. Eligible employees must have completed
a minimum of three months’ service with the Group. The
purchase price of the shares, as set by the Chief Executive
Officer on behalf of the Board of Directors, corresponds to the
average of the opening share prices quoted over the 20
trading days preceding the pricing date.
In 2008, the Group issued 8,272,947 shares with a par value of
€4 (2007: 4,981,609 shares) to members of the PEG, for a total
of €353 million (2007: €294 million).
In addition to the standard plans, leveraged plans are offered
to employees in countries where this is allowed under local
law and tax rules.
Standard plans
Under the standard plans, eligible employees are offered the
opportunity to invest in Saint-Gobain stock at a 20% discount.
The stock is subject to a five or ten-year lock-up, except
following the occurrence of certain events. The compensation
cost recorded in accordance with IFRS 2 is measured by reference
to the fair value of a discount offered on restricted stock
(i.e. stock subject to a lock-up). The cost of the lock-up for the
employee is defined as the cost of a two-step strategy that
involves first selling the restricted stock forward five or ten
years and then purchasing the same number of shares on the
spot market and financing the purchase with debt. The
borrowing cost is estimated at the rate that would be charged
by a bank to an individual with an average risk profile for a
general purpose five- or ten-year consumer loan repayable at
maturity (see Note 1 for details of the calculation).
The standard plan cost recorded in the income statement amounted to €8.4 million in 2008 (2007: €11.9 million), net of the lockup
cost for employees of €29.8 million (2007: €30.3 million).
The following table shows the main features of the standard plans, the amounts invested in the plans and the valuation assumptions
applied in 2008 and 2007.
2008 2007
Plan characteristics
Grant date February 22 February 23
Plan duration (in years) 5 or 10 5 or 10
Benchmark price (in €) 51.75 72.56
Purchase price (in €) 41.41 58.05
Discount (in %) 20.00 % 20.00 %
(a) Total discount on the grant date (in %) 22.05 % 21.11 %
Employee investments (€ millions) 168.7 205.4
Total number of shares purchased 4,073,045 3,539,025
Valuation assumptions
Interest rate paid by employees (1) 7.57 % 7.36 %
5-year risk-free interest rate 3.61 % 4.02 %
Repo rate 0.25 % 0.25 %
(b) Lock-up discount (in %) 17.17 % 15.24 %
(c) Total cost to the Group (in %) (a-b) 4.88 % 5.87 %
(1) A 0.5-point decline in borrowing costs for the employee would have an impact of €3.1 million on 2008 cost as calculated in accordance with IFRS 2.
153 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Leveraged plans
Under the leveraged plans introduced in 2007 and 2008,
eligible employees are offered the opportunity to invest in
Saint-Gobain stock at a 15% discount. The yield profile of the
leveraged plans is different from that of the standard plans, as
a third-party bank tops up the employee’s initial investment,
essentially multiplying by ten the amount paid by the
employee. The bank intermediation allows to secure the initial
funding, to secure the yield for the employee and to increase
the indexation on a leveraged number of directly subscribed
shares.
Saint-Gobain – Financial Report 2008